Pension

A pension (/ˈpɛnʃən/; from Latin pensiō 'payment') is a fund into which amounts are paid regularly during an individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be:

  • a "defined benefit plan", where defined periodic payments are made in retirement. The sponsor of the scheme (e.g. the employer) must make further payments into the fund if necessary to support these defined retirement payments, or
  • a "defined contribution plan", under which defined amounts are paid in during working life, and the retirement payments are whatever can be afforded from the fund.[1]

Pensions should not be confused with severance pay; the former is usually paid in regular amounts for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment before retirement.

The terms "retirement plan" and "superannuation" tend to refer to a pension granted upon retirement of the individual;[2] the terminology varies between countries. Retirement plans may be set up by employers, insurance companies, the government, or other institutions such as employer associations or trade unions. Called retirement plans in the United States, they are commonly known as pension schemes in the United Kingdom and Ireland and superannuation plans (or super[3]) in Australia and New Zealand. Retirement pensions are typically in the form of a guaranteed life annuity, thus insuring against the risk of longevity.

A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Labor unions, the government, or other organizations may also fund pensions. Occupational pensions are a form of deferred compensation, usually advantageous to employee and employer for tax reasons. Many pensions also contain an additional insurance aspect, since they often will pay benefits to survivors or disabled beneficiaries. Other vehicles (certain lottery payouts, for example, or an annuity) may provide a similar stream of payments.

The common use of the term pension is to describe the payments a person receives upon retirement, usually under predetermined legal or contractual terms. A recipient of a retirement pension is known as a pensioner or retiree.

  1. ^ Thomas P. Lemke, Gerald T. Lins (2010). ERISA for Money Managers. Thomson Reuters. ISBN 9780314902023. Retrieved 11 October 2015.
  2. ^ "WordNet Search - 3.1". princeton.edu.
  3. ^ "Industry SuperFunds - Home". industrysuper.com. Retrieved 17 September 2010.